No one is irreplaceable. That’s essentially the message Terry Taylorsent one of the packaged snack category’s most influential manufacturers aboutnine months ago.
Frustrated with pre-pricing and backstock issues, Taylor decided to cut ties with leading chip manufacturer Frito-Lay and pull all its products out of his company’s 14 Buzz Buy Convenience Stores. Early on he was worried the move might turn some customers in the direction of his competitors’ stores, but nonetheless he realized he had to take a stand.
Buzz Buy’s competitive situation was changing dramatically at the time, with Wal-Mart opening a Supercenter with gas pumps in the small Arkansas town of Magnolia which Buzz Buy calls home. In order to “survive and stay afloat,” as Taylor says, the company had to do two things: cut costs and increase in-store sales and margins. With pre-priced items inhibiting profit potential, vendors that wouldn’t budge on the pre-priced mentality were simply shown the door.
“Frito-Lay has some strong brandsbrands that people are loyal to,” saysTaylor, director of operations for Buzz Buy. “Sure, there was a lot of complaining[from customers] at first, but today I couldn’t pick out one customer we lostas a result of making that move. There may be some people that drive by ourstores thinking, ‘We might not stop there because they don’t have Frito-Layproducts.’ But the people that came in got used to the fact that Frito-Lay wasn’there.”
|Convenience Store Snack Sales|
Share of category sales by segment (all sales in 000)
$ Sales % Chg
Unit Sales % Chg
|Total Conv Cookies|
|1 Nabisco Oreo Choc Sand|
|2 Little Debbie Fudge Covered|
|3 Nabisco Chips Ahoy Choc Chip|
|4 Grandmas HmeStyl Choc Chip|
|5 Nabisco Nutter Butter Sand|
|6 Nabisco Fig Newton|
|7 Little Debbie Oatmeal Crm Pies|
|8 Keebler Soft Batch Choc Chip|
|9 Mrs Fields Choc Chip|
|10 Nabisco Oreos Minis Choc Sand|
|Total Conv Crackers|
|1 Nabisco Premium Saltines|
|2 Nabisco Ritz Everyday|
|3 Sunshine Cheez-It Savory|
|4 Nabisco RitzBits w/Chz Svry|
|5 Cheetos Cracker Sand|
|6 Keebler Cracker Paks Sand|
|7 Nabisco RitzBits w/PntBtr Svry|
|8 Chesters Cracker Sand|
|9 Lance ToastChee Cracker Sand|
|10 Peter Pan Cracker Sand|
Source: Information Resources Inc., Total US ConvenienceLatest 52 Weeks Ending March 20, 2005
In fact, barring a few exceptions, Taylor says he has been able to find suitable substitutions for most of the major snack SKUs with the help of two smaller, regional companies: Golden Flake Snack Foods and Tom’s Foods. Even though Tom’s filed for Chapter 11 bankruptcy protection in April of this year, Taylor is convinced that the snack company will regain its stability.
“When you take out someone like Frito-Lay, you can’t replace some things, likeScoops and other sub-brands that are indigenous to Frito-Lay,” he says. “Butthere are a lot of things that are pretty close or in some cases, from whatcustomers tell us, even better. I have some vendor friends, and those who weren’ttelling me how stupid I was were telling me how bold a move it was. Sometimesyou just get tired of people telling you wha
t you can and cannot do.”
Despite some early jitters, Taylor believes he’s foundhis justification for swapping out vendors. Early into the changeover, he analyzedtwo of his stores and saw that, even after making the decision to switch vendors,it took those two stores a month and a half to sell out all the backstock.
“[Our stores] had become a warehouse for them,” Taylor says. “The way the contract was structured, they were using that room to bulk up their sales.”
Sales dipped initially, but once customers became accustomed to seeing the new snack brands on Buzz Buy shelves, sales recovered. Today, the chain has not only been able to keep its snack sales “afloat,” but it has actually seen increases in both sales and profits for the category.
“Now I can have the margins I want,” he says, “plus the companies I’m workingwith provide good promotions that let me combine volume with profit.”
Snack chips remain a hot segment for Buzz Buy stores, and even though meat snacks have been riding quite a wave well before last year’s low-carb phenomenon, Taylor doesn’t envision that segment as having a lot of growth potential. Now, he considers them “stable.”
He has, however, seen some growth in sweet goods. The chain has had tremendoussuccess merchandising 25′ four-packs of snack cookies near the point ofsale (see sidebar, p. 40), but Taylor hopes to have better results inmarrying coffee with sweet snacks in combo deals. He says customer “enthusiasm”for combo deals just hasn’t been there. But he’s not done trying; he believesin the concept and thinks he just hasn’t found the right combination yet.
“It’s going to be a good year for snack sales,” Taylor says. “I don’t see anymajor challenges getting in the way. All the major players in the game are comingout with new items at a good speed, and they’re not flooding the market witha lot of products that force us to make really hard decisions as to what staysand what goes. Now more than ever, I’m beginning to understand that the snackbusiness is being run by smart people.”